Louisiana Nat. Bank of Baton Rouge v. Triple R Contractors, Inc.

• Decision Date: 11 April 1977
• Docket Number: No. 58405,58405
• Parties: LOUISIANA NATIONAL BANK OF BATON ROUGE v. TRIPLE R. CONTRACTORS, INC., et al.
• Court: Louisiana Supreme Court

Page 7

345 So.2d 7

LOUISIANA NATIONAL BANK OF BATON ROUGE v. TRIPLE R. CONTRACTORS, INC., et al.

No. 58405.

Supreme Court of Louisiana.

April 11, 1977.

Rehearings Denied May 13, 1977.

Robert M. Day, Day & Grand, Baton Rouge, for plaintiff-applicant.

Charles W. Borde, Jr., Durbin, Durbin, Borde & Fogg, Denham Springs, Charles O. Simmons, Jr., E. Drew McKinnis, McKinnis & Juban, Baton Rouge, for defendants-respondents.

Prentice L. G. Smith, Jr., Smith & Smith, Baker, for intervenor-respondent.

DENNIS, Justice.

We are called upon to decide whether the developer of an apartment complex who divides its construction into two segments, by having the construction performed on separate but adjacent lots under two separate construction contracts, may give his lender a mortgage superior to materialmen's liens on the second segment although work commences on the first segment before the mortgage is filed. The case ultimately hinges upon whether the segments constitute two different 'phases' of subdivision development under the Private Works Act, La. R.S. 9:4801, et seq.

On October 17, 1972, Triple R Contractors mortgaged to Louisiana National Bank (LNB) 4.89 acres of its 6.6 acre tract on Essen Lane in East Baton Rouge Parish to secure a loan for the construction of a 94-unit apartment complex on the mortgaged property. LNB provided 10% Of the funds for the project and Colwell Mortgage Trust supplied the remaining 90%; at the completion of construction, the mortgage and the note it secured were to be assigned to Colwell which would reimburse to LNB its 10% Investment. The act of mortgage was recorded on the same day it was executed, together with a building contract between Triple R and Riddle Masonry Company, Inc., and an affidavit by a licensed civil engineer certifying that no work had begun and no materials had been placed on the building site. Construction began shortly thereafter.

On March 1, 1973, Triple R purchased on additional 2.58 acres adjacent to its 6.6 acre tract, and on March 29, 1973, mortgaged the entire 9.18 acre tract to LNB, under the same arrangement with Colwell Mortgage Trust as the 1972 mortgage. This mortgage was given to secure a second loan to be used in the construction of a 97-unit apartment complex, specifically described and referred to as 'Phase II' in the mortgage, on the 4.29 acres of the property not already devoted to the construction of Phase I. Recorded with the mortgage and a building contract for the Phase II construction, was a civil engineer's no-work affidavit relating only to the 4.29 acres comprising Phase II. At this time work on Phase I was well under way.

Phase I was accepted as completed on January 2, 1974, and a clear lien certificate was issued by the Clerk of Court on February 4, 1974. The mortgage on Phase I was then assigned to Colwell Mortgage Trust.

Prior to the completion of Phase II, Triple R. defaulted under the terms of both the Phase I and Phase II mortgages and notes. As a result Colwell Mortgage Trust instituted foreclosure proceedings against the Phase I complex and LNB instituted foreclosure proceedings against the Phase II complex.

A number of interventions claiming materialman's liens were filed against the Phase II property by persons who had furnished supplies and materials to that project. On February 12, 1975 the property was adjudicated to LNB by Sheriff's sale subject to any liens and encumbrances which primed the mortgage in favor of LNB. LNB then brought this rule to have its mortgage recognized as superior to the claims and liens of the intervenors and to have LNB declared to be entitled to the said property free and clear of all liens and other encumbrances.

After a hearing on the rule, the trial judge concluded that the apartment complex was built as one project, albeit in 'two interconnected phases,' and that LNB's rights under the Phase II mortgage could not prime those of the lienholding materialmen because the mortgage was not recorded before work had begun on the project, which in his opinion included Phase I. The First Circuit Court of Appeal Affirmed the judgment of the trial court.

LNB argues that the lower courts erred in failing to recognize the Phase II job site as distinct from the Phase I construction; under this view, the Phase II mortgage would have a superior rank if recorded before work had begun or materials were supplied to the Phase II job site.

La. R.S. 9:4801 grants a privilege upon immovables to persons furnishing materials for use in construction or improvement of the property with the consent or at the request of the owner. Materialmen's liens, secured in compliance with the provisions of La. R.S. 9:4801, et seq., are superior to the claims of mortgagees unless the mortgages 'exist and have been recorded before the work or labor has begun or any material has been furnished.' La. R.S. 9:4801(B). The phrase, 'before the work or labor is begun or any material (has been) furnished,' is defined by La. R.S. 9:4819(A)(1) and (3) as follows:

'(1) In the event that the work or construction is new, then 'work or labor in begun or material is furnished' is defined as having begun when either excavation has been started so that it can be observed on inspection, or material has been furnished an delivered to the job site which is visible upon inspection and which material when delivered had a value in excess of one hundred dollars provided, however, that test piling shall be excluded from this definition.

'(3) In any event, if an affidavit, duly signed by an architect, a licensed civil engineer or registered land surveyor, before a notary public, has been filed in the office of the clerk and recorder of the parish in which the property is located or in the case of Orleans Parish, in the mortgage office thereof, which affidavit certifies that he has inspected the job site on a certain date and at a certain time and that no work has begun or material furnished to the building site, either on new construction or on the improvement, repair or reconstruction of existing construction; and such affidavit is filed immediately prior to the filing of a bona fide mortgage or bona fide vendor's lien, or within two business days thereafter, then any lender, including banks, savings and loan associations, life insurance companies, credit unions or other institutional lenders, and other interested parties may rely on the facts recited in said affidavit and shall maintain any and all privileges to and priority over other liens and claims as conferred by Title 9, and particularly,...